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ASX boss warns US default would have dramatic consequences

Peter RyanUpdated
Wed 16 Oct 2013, 9:02 AM AEDT

The head of the Australian Securities Exchange has warned of dramatic consequences if the US defaults on its debt obligations. Elmer Funke Kupper believes a last minute deal will be struck, but thinks the deadlock has damaged America's international standing and the perceived safety of US Treasury bills.

Transcript

TIM PALMER: The head of the Australian Securities Exchange says the mere speculation that the US might default on its debt obligations has already damaged America's reputation in the eyes of the world.

Elmer Funke Kupper believes US Republicans will ultimately strike a last minute deal with president Obama to what he calls avoid catastrophic consequences for the global economy.

The ASX boss spoke in Sydney with our business editor Peter Ryan.

PETER RYAN: Well, Elmer Funke Kupper, what will happen if the US actually does default?

ELMER FUNKE KUPPER: I think the ingoing assumption must be that that won't happen because I would still be hopeful that the US parties would know that that would have very dramatic consequences for the entire world economy.

PETER RYAN: The clock is still ticking though but do you think this is just theatre or that the US will actually default on its debt obligations?

ELMER FUNKE KUPPER: I'd like to think it's just theatre, but of course I'm not playing in the theatre myself and so it really depends on the folks who are running through this.

I think it's fair to say that even if it's just theatre, the US will have done damage to its international standing irrespective, because we cannot have the number one economy in the world going through this every year.

PETER RYAN: So even without a technical default that's coming up in a few days' time, unless a deal is done, this has done some damage to the credibility of the United States.

ELMER FUNKE KUPPER: I think all investors would like stability and certainty in the long run. And I think in the Western world we continue to stumble at the moment from minor crisis to minor crisis.

And let's hope that this is a minor one because in the definition of what is safe, US Treasuries are considered safe and have been for the last 50 or so years. So if that gets shaken, other things might get shaken too and I think that will be very damaging, not just to the US but to the world economy.

PETER RYAN: China holds something like $1.5 trillion worth of US debt. How do you think they'll be viewing even the potential of a US default?

ELMER FUNKE KUPPER: It is true of course that about $5.7 trillion of the US debt is held by offshore parties and so they fund the United States. And so one of the consequences of course of this going wrong is that it will become more expensive to fund the United States and that will only make the problem worse for them. So this is why it's so unimaginable that they would allow this to go wrong.

PETER RYAN: The Reserve Bank has opted to keep interest rates on hold for now, but do you think that could change depending on what happens in a few days' time?

ELMER FUNKE KUPPER: I'm sure it could change. My sense is that it would be good news if we can hold interest rates for a while because like with everything else in life, when it comes to the policy settings around an economy, you don't want extremes. You don't want record low interest rates or record high interest rates. You want some stability that sits close to the middle.

So I think it's good news for the economy if we don't have to cut interest rates any more and I'm hopeful that will be the case.

TIM PALMER: The head of the Australian Securities Exchange, Elmer Funke Kupper, with business editor Peter Ryan.